Amstrad Plc’s chairman Alan Sugar’s message to shareholders at year end was by his own admission unsavoury. Pre-tax slumped 54% to a little over UKP20m on turnover that dropped 8.5% to just over UKP528m. The first half of the year wasn’t too bad but the second half was hit by the recession and the company made a loss – firts half profits were UKP40.1m. Surprisingly, Amstrad’s performance in Germany was well below forecast, mainly due to a slump in demand for satellite-related products and personal computers. Sugar commented that shortly after the reunification with East Germany a great demand for consumer electronic merchandise was created. This has turned out to be short-lived and somewhat over-hyped. In all, the European market was extremely difficult in the personal computer, video cassette recorder and satellite equipment markets. However, Sugar noted that Amstrad maintained its market share in certain personal computer sectors and was the market leader in laptop and portable personal computers in the UK as well as leading in the 80286 desktop computer market. Over the year, to compensate, Amstrad has undergone a rationalisation programme, which has resulted in a 20% reduction in operating costs. Looking to fresher European fields, Amstrad has spent the year entering markets in which it has not yet been active. For example, Amstrad has formed a joint venture, called Amstrad Hellas, with its ex-distributor in Greece. It has also entered into a distribution company that has been given permission to trade as Amstrad Nordic. Aside from the recession hitting Amstrad’s figures, it has also taken a UKP20m hit as an exceptional item because of the problems surrounding the 2000 series.
Making the lawyers richer
Many models in this range suffered from hard disk drive faults Amstrad is now seeking damages from Western Digital Corp and Seagate Technology Inc – and the impact of these faults meant that in the 18 months it took to rectify them, market prices dropped and specifications changed. That is why Amstrad is pursuing damages through the courts, although Sugar denies he is litigious by nature, saying: Litigation is not part of our business way, as indeed in many cases it is an expensive waste of time, simply making the lawyers richer. Sugar reckons that Amstrad’s faltering financial performance is largely due to world dumping by competitors and he does not think that pricecutting is the way forward, instead more focus will be placed on the Amstrad brand name, which means heavy advertising expenditure. However, also key is the continuous development of new products and it is in this area where we must find the morale and strength to do so with enthusiasm whilst riding out the current recession. Aside from computer and video products Amstrad is concentrating on the development of satellite products and the recently announced VideoPhone project with GEC Plc’s Marconi unit. As for the financial outlook for the current fiscal year, Sugar points out that Amstrad has a strong balance sheet with net cash of UKP59.6m. Nevertheless to remain competitive in the personal computer and video markets margins will be under attack and Amstrad must continue to spend heavily on advertising its brand name. The net result of all this is that if the market remains soggy, profits will be affected. On a confident note Sugar ended by saying, considering the state of the general market and the fact that many others have reported dramatic downturns or losses in our sector, our strategy is, as I see it, the most prudent way forward to live another day in a strong financial position.
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